Central Plains Media is a leading publishing company in Henan Province. It is deeply involved in the field of education and publishing, and is actively promoting the construction of a cultural and creative research base. The company's performance has been growing steadily in recent years, achieving revenue of 6.88 billion yuan (YoY +11.7%) in the first three quarters of 2021 and net profit of the mother of 630 million yuan (YoY +9.0%). We expect the company's revenue from 2021 to 2023 of 105.8/112.4/11.71 billion yuan (YoY +10.3%/+6.3%/+4.2%), and net profit of 10.9/11.7/1.25 billion yuan (YoY +17.3%/+7.4%/+6.7%). Referring to the valuation levels of comparable companies, we gave the company a target price of 11.5 yuan/share for 202E, corresponding to 10.1x PE, coverage for the first time, and gave it an “increase in holdings” rating.
Henan is a leader in education publishing, with steady growth in performance. The company is the exclusive agent of mainstream textbook publishing houses for primary and secondary schools in Henan. Its subsidiary, Henan Xinhua Bookstore, is the only supplier of free textbook distribution in Henan Province. The company's main business covers the complete industrial chain of the publishing industry. In 2020, distribution/publishing/material sales/printing/other businesses accounted for 79.9%/24.8%/18.8%/5.1%/2.7% respectively. The company's operating income and net profit CAGR for 2016-2020 were +5.0%/+8.4% respectively. In the first three quarters of 2021, the company achieved revenue of 6.88 billion yuan (YoY +11.7%) and net profit of Fumo was 630 million yuan (YoY +9.0%).
The industry is developing steadily, and the company's performance is highly certain. The book publishing industry where the company is located has maintained steady growth over the past 10 years and has recovered rapidly after the impact of the epidemic. Among them, rigid demand for textbooks and teaching aids for primary and secondary school students' learning scenarios has provided stable support to the industry. In 2012-2020, retail sales of textbooks and teaching aids in China rose from 37.1 billion yuan to 74.5 billion yuan (CAGR 9.1%). The share of retail sales of publications continued to rise, accounting for 66.6% in 2020. Furthermore, Henan Province is a province with a large population and a large education province, and the education publishing market has stable support.
Traditional business transformation and upgrading improve efficiency, and emerging businesses expand the boundaries of enterprise development. (1) Traditional business:
The distribution business achieves integrated coverage of online and offline channels; the publishing business uses subsidiaries to create the characteristics and brands of the Yu edition books while strengthening educational brands and systems; the printing business introduces and puts into use a full line of digital printing systems to improve production efficiency. (2) Emerging businesses: Actively lay out research, culture and creativity, cultural tourism and other businesses, improve product matrices, and explore business growth momentum.
Risk factors: changes in education policies and tax policies; fluctuations in the prices of raw materials such as paper; the impact of the pandemic on offline book retail.
Profit forecasts and investment suggestions: Zhongyuan Media is a leading publishing company in Henan Province. It is deeply involved in the field of education and publishing, and is actively promoting the construction of a cultural and creative research base. The company has benefited from the high certainty demand for regional education publications, and its performance has been growing steadily in recent years. We expect the company to achieve revenue of 105.8/112.4/11.71 billion yuan (YoY +10.3%/+6.3%/+4.2%) from 2021 to 2023, and to achieve net profit of 10.9/11.7/1.25 billion yuan (YoY +17.3%/+7.4%/+6.7%). Referring to the valuation levels of comparable companies, we gave the company a target price of 11.5 yuan/share for 202E, corresponding to 10.1x PE, coverage for the first time, and gave it an “increase in holdings” rating.
